Policy Rate Update: Dovish BSP Narrows IRD
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Inflation Update: Prices rise even slower in May
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Monthly Recap: BSP to outpace the Fed in rate cuts
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- The Bangko Sentral ng Pilipinas cut its key interest rate to 5.25%—the lowest in over two years—marking its second consecutive rate reduction and hinting at least one more cut this year to bolster the economy.
- The Philippine Exporters Confederation, Inc. said the country could still meet its export target under the Philippine Development Plan if it maintains its competitive edge. However, the Export Development Plan goal is likely out of reach.
- The World Bank urged the Philippines to implement fiscal reforms and rebuild its financial buffers to better withstand economic shocks amid projections of below-target growth in the coming years.
- Israel struck Iranian nuclear facilities on Thursday, prompting Iran to retaliate with missile and drone attacks, including one that hit an Israeli hospital, as their escalating week-long conflict shows no signs of de-escalation.
- US President Donald Trump said he will decide within two weeks whether the US will intervene in the Israel-Iran conflict, using the window to urge Tehran toward negotiations as tensions continue to rise.
Our Portfolio Recommendation
Our peso portfolio remains at a neutral stance of 50% fixed income and 50% equities as the BSP becomes increasingly accommodative. However, we remain cautious amid global uncertainties. The sustainability of the current bounce in local equities remains in contention, largely influenced by geopolitical jitters and cautious sentiment, as opposed to fundamentals. As for the dollar portfolio, we are shifting our global strategy back to 50% fixed income and 50% equities from the previous 60%/40% allocation because of easing US-China trade tensions. However, there is lingering uncertainty and we prefer to remain defensive despite the shift in risk sentiment.
| 2025 Metrobank Forecast | 2026 Metrobank Forecast | 2027-2029 Metrobank Forecast | |
|---|---|---|---|
| GDP | 5.7% | 6.1% | 6.0% |
| Inflation | 2.2% | 3.3% | 3.0% |
| BSP Target Reverse Repurchase Rate | 4.75% | 4.25% | 5.00% |
| Federal Funds Rate | 4.00% | 3.50% | 4.00% |
| USD/PHP | 56.1 | 56.7 | 55.0 |
CHART OF THE DAY
Chart of the Day
BSP further reduces policy rates in June
The Monetary Board reduced the Bangko Sentral ng Pilipinas’s (BSP) target Reverse Repurchase (RRP) Rate by 25 basis points to 5.25% amid a moderated inflation outlook for 2025. This move towards a more accommodative monetary policy aims to counter potential slower growth in the Philippines caused by global economic deceleration, while keeping a close eye on emerging inflation risks. Sources: Bloomberg, BSP
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USD/PHP closes above 57 on strong dollar demand
- The USD/PHP exchange rate opened 12 centavos higher at 57.10 on Thursday, after the US Federal Reserve’s hawkish pause.
- Buying interest was evident from the open on an initial lack of local offers after Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona Jr. described foreign exchange intervention as futile in this market.
- Buying interest persisted throughout the day, with the BSP Monetary Board meeting providing little reprieve from the grind higher.
- The USD/PHP exchange rate ultimately closed at 57.45, or 47 centavos higher day-on-day.
- The current support levels of USD/PHP are at 56.80/90 while the resistance levels are at 57.00/10.
READ MORE
Local yields rise amid weakening sentiment
- Local yields rose by 2 to 4 basis points (bps) on Thursday as peso depreciation weighed on sentiment, with concerns it might influence the central bank’s policy stance.
- The Bangko Sentral ng Pilipinas (BSP) cut the policy rate by 25 bps to 5.25%, prompting a brief rally that quickly faded amid lingering caution.
- BSP revised its 2025 inflation forecast lower to 1.6%, from 2.3% in April, and signaled potential for further easing.
- Fixed Rate Treasury Notes 10-72 and 10-73 traded as high as 6.325% and 6.425%, respectively, before paring gains after the BSP’s decision.
- Trading activity was mixed, closing 1 to 3 bps from previous levels due to two-way interest post-rate cut.
- The next key event is next week’s dual-tranche auction for the 3-year and 25-year auctions.
READ MORE
PSEi rebounds after central bank’s rate cut
- The Philippine Stock Exchange index (PSEi) ended 19.58 points higher at 6,357.01 on Thursday, supported by anticipation of a potential BSP rate cut later in the day.
- Financials (+1.09%) and Holding Firms (+0.07%) led sectoral gainers, while Mining & Oil (-1.12%) and Services (-0.26%) ended in the red.
- Emperador Inc. (+1.94%), GT Capital Holdings Inc. (+1.77%), and Bank of the Philippine Islands (+1.55%) drove index gains.
- Meanwhile, ACEN Corp. (-1.53%), JG Summit Holdings Inc. (-1.51%), and Universal Robina Corp. (-0.98%) led the decliners.
- Markets largely moved in wait-and-see mode, digesting the US Federal Reserve’s neutral tone overnight and bracing for local monetary policy direction.
READ MORE
USD/PHP closes above 57 on strong dollar demand
- The USD/PHP exchange rate opened 12 centavos higher at 57.10 on Thursday, after the US Federal Reserve’s hawkish pause.
- Buying interest was evident from the open on an initial lack of local offers after Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona Jr. described foreign exchange intervention as futile in this market.
- Buying interest persisted throughout the day, with the BSP Monetary Board meeting providing little reprieve from the grind higher.
- The USD/PHP exchange rate ultimately closed at 57.45, or 47 centavos higher day-on-day.
- The current support levels of USD/PHP are at 56.80/90 while the resistance levels are at 57.00/10.
READ MORE
Local yields rise amid weakening sentiment
- Local yields rose by 2 to 4 basis points (bps) on Thursday as peso depreciation weighed on sentiment, with concerns it might influence the central bank’s policy stance.
- The Bangko Sentral ng Pilipinas (BSP) cut the policy rate by 25 bps to 5.25%, prompting a brief rally that quickly faded amid lingering caution.
- BSP revised its 2025 inflation forecast lower to 1.6%, from 2.3% in April, and signaled potential for further easing.
- Fixed Rate Treasury Notes 10-72 and 10-73 traded as high as 6.325% and 6.425%, respectively, before paring gains after the BSP’s decision.
- Trading activity was mixed, closing 1 to 3 bps from previous levels due to two-way interest post-rate cut.
- The next key event is next week’s dual-tranche auction for the 3-year and 25-year auctions.
READ MORE
PSEi rebounds after central bank’s rate cut
- The Philippine Stock Exchange index (PSEi) ended 19.58 points higher at 6,357.01 on Thursday, supported by anticipation of a potential BSP rate cut later in the day.
- Financials (+1.09%) and Holding Firms (+0.07%) led sectoral gainers, while Mining & Oil (-1.12%) and Services (-0.26%) ended in the red.
- Emperador Inc. (+1.94%), GT Capital Holdings Inc. (+1.77%), and Bank of the Philippine Islands (+1.55%) drove index gains.
- Meanwhile, ACEN Corp. (-1.53%), JG Summit Holdings Inc. (-1.51%), and Universal Robina Corp. (-0.98%) led the decliners.
- Markets largely moved in wait-and-see mode, digesting the US Federal Reserve’s neutral tone overnight and bracing for local monetary policy direction.
READ MORE